Allowed

V.P.Fakrudhin v. State of Kerala

Kerala HC24 Oct 2014Crl.Rev.Pet/434/2003

Case brief

AI extract

What is this about?

This judgment held that under Section 141 of the Negotiable Instruments Act, prosecuting a company's functionary requires the company to be charged. Where the complaint against the firm is not maintainable, the Managing Partner cannot be convicted on the same complaint.

What did the court decide?

Conviction and sentence of the second accused/Managing Partner set aside in all revision petitions.

V.P.Fakrudhin Vs State of Kerala — Cheque Dishonour | Kerala HC (2014)

¶1

IN THE HIGH COURT OF KERALA AT ERNAKULAM

¶2

PRESENT:

¶3

THE HONOURABLE MR.JUSTICE K.HARILAL

¶4

FRIDAY, THE 24TH DAY OF OCTOBER 2014/2ND KARTHIKA, 1936

¶5

Crl.Rev.Pet.No. 434 of 2003 (B) --------------------------------

¶6

AGAINST THE JUDGMENT IN CRL.A.NO. 69/2000 OF V ADDITIONAL SESSIONS COURT, ERNAKULAM, DATED 30-09-2002.

¶7

AGAINST THE JUDGMENT IN CC 283/1997 OF THE J.M.F.C.-II, KOCHI DATED 20-01-2000.

¶8

REVISION PETITIONER/APPELLANT IN CRLA.NO. 69/2000 AND ACCUSED IN CC 283/97:

¶9

V.P.FAKRUDHIN, AGED 39, S/O.PAREEKUTTY, MANAGING PARTNER, M/S.FOURT BRITES ASSOCIATES, A.P.XI/1440 A, CHANDIROOR.

¶10

BY ADVS.SRI.VARGHESE C.KURIAKOSE SRI.PRAVEEN K. JOY SRI.JACOB SEBASTIAN SRI.SANTHARAM.P

¶11

RESPONDENT(S)/RESPONDENT IN CRL.A. 69/2000 & COMPLAINANT AND STATE:

¶12

1. STATE OF KERALA, REPRESENTED BY PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM. 2. M/S.MAERSK INDIA LTD., 24/1406, IST FLOOR, PILMEN BUILDINGS, WILLINGTON ISLAND, COCHIN - 3. REPRESENTED BY POWER OF ATTORNEY HOLDER, PRADEEP WARRIER, S/O.MOHAN R.WARRIER, SAVITHA, AMBILI NAGAR, TRIPUNITHURA, COCHIN-31. R1 BY PUBLIC PROSECUTOR SRI. JIBU P. THOMAS R2 BY ADV. SRI.V.M.SYAM KUMAR R2 BY ADV. SMT.KRIPA ELIZABETH MATHEWS R2 BY ADV. SRI.V.N.HARIDAS R2 BY ADV. SMT.C.B.SUMA DEVI THIS CRIMINAL REVISION PETITION HAVING BEEN FINALLY HEARD ON 24-10-2014, ALONG WITH CRRP. 435/2003 & CRRP. 436/2003, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:

¶13

'C.R.'

¶14

K.HARILAL, J.

¶15

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

¶16

Crl.R.P. Nos.434, 435 & 436 of 2003

¶17

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

¶18

Dated this the 24^th day of October, 2014

¶19

COMMON ORDER

¶20

In all the above revision petitions, the revision petitioner and the respondents are one and the same and the impugned judgments, which confirmed the conviction and the sentence imposed on the revision petitioner in prosecutions under Sec.138 of the Negotiable Instruments Act, 1881, (for short 'the N.I. Act') are under challenge. Since a common question of law is involved in all these revision petitions and the parties are the same, these revision petitions were heard jointly and disposed of in a common order as under.

¶21

The revision petitioner is the second accused in C.C.Nos.283/97, 281/97 and 282/97 on the files of the Judicial First Class Magistrate's Court-II, Kochi, filed by the 2^nd respondent herein. The first accused is a firm and the second accused is its Managing Partner. The facts of all these cases are

¶22

Crl.R.P.434/03 & conn. cases :2:

¶23

also similar. The complainant is a shipping company and the first accused company is a customer. The complainant's case in all the cases can be summarised as follows: (The parties are referred to as in the complaint.) Towards freight charges due from the first accused, the first accused firm had issued three cheques for the amounts of Rs.1,87,782/-, Rs.1,87,467/- and Rs.1,87,527/- dated 3/10/1996, 24/10/1996 and 8/11/1996 respectively drawn on the State Bank of Travancore, Thoppumpady Branch, to the complainant. When these cheques were presented for enacashment, they were dishonoured and returned due to 'insufficiency of funds'. Though the complainant had caused to issue a lawyer's notice to the second accused requiring the payment of the cheque amounts, he did not pay the cheque amounts; nor did he send a reply notice denying the liability. Thus, the accused has committed the offence punishable under Sec.138 of the N.I. Act in each complaint. Therefore, the complainant filed the above complaints separately in respect of each cheque alleging the said offence.

¶24

The accused admitted the issuance of the cheques as well as the signatures in all the cheques. But, according to the accused, the cheques were issued as security and thereby the

¶25

Crl.R.P.434/03 & conn. cases :3:

¶26

cheques lack consideration. In short, the defence contention is that the cheques were issued not in discharge of a legally enforcible debt or liability.

¶27

In all the cases, the respective cheques were marked as Ext.P2. The Power-of-Attorney Holder of the complainant was examined as P.W.1 and the Manager of the Bank was examined as P.W.2 and Exts.P1 to P7 were also marked. No evidence, either oral or documentary, had been adduced by the accused.

¶28

When the second accused was examined under Sec.313 of the Cr.P.C., he pleaded not guilty. He maintained his contention that the concerned cheques were issued as security and the cheques lack consideration. After considering the evidence on record, the learned Magistrate found the first accused firm not guilty of the offence on the ground that complaint is not maintainable, in the absence of statutory notice under Sec. 138(b) of the N.I. Act to the first accused firm. But, the second accused was found guilty of the offence punishable under Sec.138 of the N.I. Act and convicted thereunder. He was sentenced to undergo rigorous imprisonment for 10 months and to pay a fine of Rs.5,000/-. In default of payment of fine, he shall undergo simple imprisonment for a period of three months more. If the fine amount is realised, out of it, Rs.2,500/- shall

¶29

Crl.R.P.434/03 & conn. cases :4:

¶30

be given to the complainant company by way of compensation.

¶31

Though the second accused had preferred appeals before the Court of Sessions, after re-appreciating the entire evidence on record, the learned Sessions Judge also concurred with the findings of the trial court, upheld the conviction; but modified the sentence imposed by the trial court. The substantive sentence of rigorous imprisonment was reduced and modified to simple imprisonment. The rest of the sentence was sustained as such, without any interference. The legality and propriety of the concurrent findings of the conviction and modified sentence imposed by the Appellate Court in each appeal are under challenge in these Revision Petitions.

¶32

Though these Revision Petitions are filed on various grounds, the learned counsel for the second accused mainly focussed on the point that the conviction and sentence imposed on the second accused are unsustainable in view of the acquittal of the first accused on the ground that complaint against the first accused firm is not maintainable due to the non issuance of statutory notice under Sec.138(a) and (b) of the N.I. Act. The learned counsel further contends that when an offence under Sec.138 of the N.I. Act is committed by a firm, prosecution against the firm is imperative, and when the complaint itself is

¶33

Crl.R.P.434/03 & conn. cases :5:

¶34

not maintainable against the first accused firm, there cannot be a further prosecution against the Managing Partner or officers and functionaries of the firm, on the basis of that complaint for the said offence.

¶35

The learned counsel for the 2^nd respondent advanced arguments to justify the concurrent findings of the conviction entered by the courts below. According to the learned counsel, though the complaint is not maintainable against the first accused firm due to non-issuance of the statutory notice under Sec.138(b) of the N.I. Act, the prosecution against the second accused is well maintainable in view of the statutory mandate under Sec.141 of the N.I. Act. The learned counsel submits that under Sec.141 of the N.I. Act, both the firm and the persons working in different categories of the firm and responsible to the firm for the conduct of the business of the company are placed in equal status and responsibility under Sec.141 of the N.I. Act. Therefore, even if the complaint is not maintainable against the firm, there is no statutory bar or legal impediment in arriving at a finding that the Managing Partner, who issued the cheques on behalf of the firm, can be prosecuted.

¶36

Since company means and includes firm and Director in relation to a firm means a partner, under the Explanation to

¶37

Crl.R.P.434/03 & conn. cases :6:

¶38

Sec.141(a) and (b) of the N.I. Act., the firm herein and its Managing Partner are referred as company and Managing Director respectively for the sake of convenience of legal discussions.

¶39

The question that arises for consideration is, where a complaint under Sec.138 of the N.I. Act is found not maintainable against the company, can the Managing Director or other persons working in different categories of the company and who are responsible to the company for the conduct of the business of the company be prosecuted further and convicted on that complaint?

¶40

Before coming to this question, it is apposite and profitable to extract Sec.141 of the N.I. Act, which reads as follows:

¶41

“ Offences by companies.- (1) If the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly, provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:

¶42

Crl.R.P.434/03 & conn. cases :7:

¶43

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.- For the purposes of this section,-

¶44

(a) “company” means any body corporate and includes a firm or other association of individuals; and

¶45

(b) “director”, in relation to a firm, means a partner in the firm.

¶46

In Aneeta Hada v. Godfather Travels and

¶47

Tours Private Ltd. (2012 KHC 4244) , on a reference, a three-Judge Bench of the Apex Court considered the question whether the Managing Director of the company alone can be prosecuted on a complaint under Sec.138 of the N.I. Act, unless the company is made an accused? The Apex Court held that the complaint under Sec.138 of the N.I. Act against the Managing Director or other persons or functionaries working in different categories of the companies, and who are responsible to the company for the conduct of the business of the company is not maintainable unless the company is made an accused in the complaint, as the prosecution against the company is imperative. In this case, the Apex Court analysed the nature

¶48

Crl.R.P.434/03 & conn. cases :8:

¶49

and extent of the liabilities of the company as well as its persons working in different categories of the company in this way, which is extracted below:

¶50

“53. It is to be borne in mind that Section 141 of the Act is concerned with the offences by the company. It makes the other persons vicariously liable for commission of an offence on the part of the company. As has been stated by us earlier, the vicarious liability gets attracted when the condition precedent laid down in Section 141 of the Act stands satisfied. There can be no dispute that as the liability is penal in nature, a strict construction of the provision would be necessitous and, in a way, the warrant.

¶51

Applying the doctrine of strict construction, we are of the considered opinion that commission of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words “as well as the company” appearing in the section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a Director is indicted.

¶52

In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of

¶53

Crl.R.P.434/03 & conn. cases :9:

¶54

offenders can only be brought in the dragnet on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada is overruled with the qualifier as stated in para 51. the decision in Modi Distillery has to be treated to be restricted to its own facts as has been explained by us hereinabove.”

¶55

This Court followed the above decision in the decision

¶56

in Chacko Mathew v.. State of Kerala and another (2013 (4) KHC 112) . In view of the legal position well settled above, I am not inclined to accept the argument advanced by the learned counsel for the 2^nd respondent that the company and the Managing Director or other functionaries under the company are equally placed and liable for commission of the offence, and even if the complaint is not maintainable against the company, the aforesaid other persons or functionaries can be prosecuted for the offence under Sec.138 of the N.I. Act, on that complaint.

¶57

In my view, Sec.141 of the N.I. Act is an enabling provision to prosecute the persons working in different categories of the company mentioned under sub-sections (1) and (2) and who are responsible to the company for the conduct of the business of the company, along with the company. The

¶58

Crl.R.P.434/03 & conn. cases :10:

¶59

said persons or functionaries of the company are vicariously liable for the offence under Sec.138 of the N.I. Act committed by the company subject to the averments and proof thereof only. When a cheque drawn and issued by the company is dishonoured for want of sufficient funds, the primary liability for the commission of the offence accrues and attributive upon the company and the company would be held liable to be prosecuted for the offence under Sec.138 of the N.I. Act by the operation of law itself. But in the case of Managing Director or other persons in different categories mentioned above, they would be held liable vicariously subject to the allegations and proof. Thus, Sec.141 of the N.I. Act makes the functionaries and persons under the company liable by a deeming fiction.

¶60

The above view is supported by the statutory requirement under Sec.138(b) of the N.I. Act. According to Sec.138(b) of the N.I. Act, the payee or the holder in due course of the cheque, as the case may be, shall make a demand for payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid. It follows that no separate notice is required to be sent to all the directors and other

¶61

Crl.R.P.434/03 & conn. cases :11:

¶62

persons responsible to the company for the conduct of the business of the company if the drawer of the cheque is the company. If the cheque is issued from the account maintained by the company, indisputably, the company itself will be the drawer of the cheque, as the company has its own legal entity and responsibility. It follows, there cannot be a prosecution under Sec.138 of the N.I. Act, without the drawer of the cheque in the array of the accused and where the company is the drawer, no prosecution will lie against the Managing Director or persons employed in different categories of the company, unless the prosecution against the company is maintainable.

¶63

In the decision in Anil Gupta v. Star India Pvt. Ltd. [2014 (2) KLD 217 (SC)] , a complaint arraigning the company and its Managing Director as the accused in respect of the cheques issued by the company and got dishonoured was filed by the complainant. But once he had sent notice under Sec.138(b) of the N.I. Act to the accused company only and later sent another notice to the company and the Managing Director. The High Court held that complaint against the company based on second notice was not maintainable. But complaint against the Managing Director is maintainable as the first notice was not sent to him. Reversing this finding, the Supreme Court

¶64

Crl.R.P.434/03 & conn. cases :12:

¶65

relying on Aneeta Hada's case (supra) held that for maintaining prosecution under Sec.141 of the N.I. Act, arraigning of a company as an accused is imperative and hence proceeding against the Managing Director cannot be continued in the absence of the company being not in the party array. In view of the above decision, it can also be held that there cannot be a split-up among the accused between the company and its functionaries or officers, where the complaint is found not maintainable against the company.

¶66

In the light of the above discussions, I hold that where the complaint under Section 138 read with Sec.141 of the N.I. Act is found not maintainable against the company, the Managing Director or other persons working in different categories of the company or the persons who are in charge and responsible to the conduct of the company mentioned under sub-sections (1) and (2) of Sec.141 of the N.I. Act cannot be prosecuted further and convicted thereunder on that complaint.

¶67

In the instant case, indisputably, the cheques were issued from the account of the company and thereby the company is the drawer of the cheques. The courts below acquitted the first accused company on a finding that the complaint is not maintainable for want of notice under

¶68

Crl.R.P.434/03 & conn. cases :13:

¶69

Sec.138(b) of the N.I. Act; but proceeded against the Managing Director on that complaint itself, and convicted him.

¶70

Going by the impugned judgments under challenge, I find that the courts below have not considered this question of law; but went wrong and erroneously arrived at a finding that the second accused has committed the offence, though the complaint is not maintainable against the first accused for want of statutory notice under Sec.138(b) of the N.I. Act. In the light of the legal position well settled by the Supreme Court and the discussions held above, I find that the conviction entered and the sentence imposed on the the second accused is liable to be set aside, as the complaint was not maintainable. In this analysis, I set aside the conviction and sentence imposed on the revision petitioner/second accused for the offence under Section 138 of the N.I. Act in all these revision petitions and bail bonds, if any, executed by him will stand cancelled.

¶71

The Revision Petitions are allowed accordingly.

¶72

( K.HARILAL, JUDGE)

¶73

okb.

V.P.Fakrudhin v. State of Kerala

Case brief

What is this about?

What did the court decide?

V.P.Fakrudhin v. State of Kerala

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

Similar cases

Radhakrishnan Nair Vs K.P.Suresh

Davis Mampilly Vs v.T.Thomas

The Superintending Engineer Vs M/S. Dora Infrastructure & Properties (P) Ltd.

C.M.Johnson @ Johney Vs O.T.Ramachandran

P.Ravi Vs State of Kerala

Rajesh Vs State of Kerala